According
to our esteemed colleague Sujata v. Manohar, J., these appeals are required to
be allowed. With orofound respect, it is not possible for us to agree with her
findings and the conclusions in so far as it is held bu her that section 5
sub-section (2) of the Central sales Tax Act, 1956 will cover the transactions
in question. We, however, agree with her so far as it is held that section
2(ab) of the central sales Tax Act has no retrospective effect and that there
is no evidence on record to attract the second part of section 5(2) which deals
with sale on high seas. We, therefore, record our separate reasons for
confirming the decisions impugned in these appeals.

In
Civil Appeal Nos. 4953-77 of 1991 a common question falls for consideration. It
is to the following effect:

"Whether
the purchases of African raw cashewnuts made by the assessees from the cashew
corporation of India (for short 'CCI') are in the course of import and,
therefore immune from liability to tax under Kerala General sales Tax Act, 1963
(hereinafter referred to as 'the Act')." Appellants in these cases are
engaged in the purchase of raw cashewnuts and export of cashew kernels after
processing. The assessments relate to Years 1970-71 to 1973-74. It is the case
of the appellants that they had placed orders for import of raw cashewnuts from
African countries through the CCI had imported these raw cashewnuts and made
them available to the assessees. Consequently these transactions would be
styled as purchases by the assessees in the course of import and were outside
the sweep of the Act. This contention of the assessees was rejected by the
Kerala sales Tax Appellate Tribunal, Addl. Bench, Ernakulam.

Their
Tax Revision cases were also dismissed by a Division Bench of the Kerala High
Court and that is how the appellants have preferred these appeals by obtaining
special leave to appeal from this Court.

In
Civil Appeal Nos. 3647-52 (NT) of 1986 CCI is the assessee. The sale of
imported raw cashewnuts from African countries to the local purchasers by the
CCI have been brought to tax under the provisions of the Karnataka sales Tax
Act, 1957. The appellant is a private company registered under the companies
Act and is said to be a subsidiary of the state Trading corporation wholly
owned by the Government of India. The appellant company, the registered office
of which is at Cochin in Kerala, imports raw cashew from
East African countries under licences issued by the controller of imports and
Exports, and allots such cashew to the actual users for being processed and for
export of a certain percentage of the raw cashew allotted.

In
this process the appellant had not got itself registered as a dealer in the
Karnataka state nor had it filed returns for the years 1970-71 to 1975-76. The
contention of the appellant- company before the Taxing Authority was to the
effect that the transaction of sale by the company to the actual users was in
the course of import and, therefore , the state sales Tax Act could not
encompass such a transaction. The Taxing Authority in Karnataka on the other
hand sought to levy sales tax on the appellant on the basis that it was a
non-resident dealer. The contention of the CCI was negatived bu Karnataka
Appellate Tribunal, Bangalore.

The
appellant's Revision before the High court came to be dismissed by a Division
Bench of the High Court by its order dated 3rd march 1986 and that is how the
CCI is before us on special leave.

It
becomes, therefore, clear that a common question arises for our determination
as to whether the import of raw cashewnuts by the CCI from African exporters
and its purchase by actual users in India could be said to be a transaction in
the course of import and, therefore, eligible for exemption under section 5(2)
of the Central sales Tax Act, 1956. Both the Kerala High court as well as the
Karnataka High court have taken the view that these transaction are not saved
by section 5(2) of the central sales Tax Act, 1956 and they are exigible to
local sales tax. It is this view that has been seriously brought in challenge
by Shri Poti, learned senior counsel appearing for the appellants in civil
Appeal Nos. 4955-77 of 1991 and Shri Hegde, learned senior counsel appearing
for the appellant CCI in Civil Appeal Nos. 3647-52 of 1986. The learned counsel
appearing for the respondent-state of Kerala and state of Karnataka on the
other hand have supported the decisions of these High Courts.

In
order to resolve this controversy it is necessary at the outset to look at the
relevant constitutional and statutory provisions. under Article 286 of the
constitution of India restrictions have been place on the
power of a state to tax Sales. Articles 286(1) and 286(2) lay down as under:

"286.
Restrictions as to imposition of tax on the sale or purchase of goods. –

(1) No
law of a state shall imposed, or authorise the imposition of , a tax on the
sale or purchase of goods where such sale or purchase takes place-

(a) outside
the state; or

(b) in
the course of the import of the goods into, or export of the goods out of. the territory of India.

(2)
Parliament may by law formulate principles for determining when & sale or
purchase of good takes place in any of the ways mentioned in clause (1)."
Parliament in exercise of its powers under Article 286 sub-Article (2) enacted
central sales Tax Act, 1956. As laid down by section 3 thereof , a sale or
purchase of goods shall be deemed to take place in the course of inter-state
trade or commerce if the sale or purchase- (a) occasions the movement of goods
from one state to another; or (b) is effected by a transfer of documents of
title to the goods during their movement from one state to another. Under
section 5(1). a sale or purchase of goods shall be deemed to take place in the
course of the export of the goods out of the territory of India only if the
sale or purchase either occasions such export or it effected by a transfer of
documents of title to the goods after the goods have crossed the customs
frontiers of India. under sub-section (2), a sale or purchase of goods shall be
deemed to take place in the course of the import of the goods into the
territory of India only if the sale or purchase either occasions such import or
is effected by a transfer of documents of title to the goods before the goods
have crossed the customs frontiers of India. It, therefore, becomes a moot
question as to whether the sale of raw cashewnuts into the course of import of
these raw cashewnuts into the territory of India.

For
deciding this question the provision of sub-section (2) of section 5 will have
to be kept in view. As per the said provision the sale of imported raw
cashewnuts shall be deemed to take place in course of import only if such sales
by CCI to the local actual users or conversely the purchases of such imported
raw cashew by the local users from the CCI have occasioned such import of raw
cashew. The second part of sub-Section (2) of section 5 is not attracted on the
facts of the present cases as factually it is not found in these cases that
such sales were effected by transfer of documents of title to goods, namely. the
raw cashewnuts before they crossed the customs frontiers of India. The entire controversy.,
therefore, centers round the short question, namely, whether the sales of these
imported cashewnuts by CCI to local users were in the course of import of these
cashewnuts and whether such sales had occasioned the import.

There
are various decisions of the constitution Benches of this Court which have laid
down clear parameters for answering this question. In the case of Ben Gorm
Nilgiri Plantations Company, Coonoor and Ors. v. Sales Tax Officer, special
circle. Ernakulam and ors. [1964] 7 SCR 706 a majority of the constitution
Bench of this court speaking through shah, J., had an occasion to consider the
question whether sale of tea by the assessee-appellants to local agents of
foreign buyers would earn exemption under Article 286(1) (b) of the
constitution of India by being treated as sale in the course of exports. It is
trite to observe that the phraseology 'sale or purchase in the course of
export' as employed by section 5(1) of the Central sales Tax Act is in pari
materia with the phraseology employed by section 5 sub-section (2) dealing with
'sale or purchase in the course of import'. In the aforesaid case the
appellants were carrying on business of growing and manufacturing tea in their
estates. They sold tea to the local agents of foreign buyers. The sales were effected
by public auction at FortCochin. These Tax officer assessed the appellants to pay sales tax
on transaction of auction held at FortCochin. It was contended by the
appellant-assessees that purchase by local agents of foreign buyers were for
their principals abroad and the goods were in fact exported out of the
territory of India and therefore, the sales by appellants were in the course of
export out of the territory of India and were thus exempt from tax under
article 286(1) (b) of the constitution. The aforesaid contention of the
appellants was negatived by all the authorities under the sales Tax Act. They
thereafter also failed before the High Court. The majority of the constitution
Bench also dismissed their appeal. Shah, J., speaking for the majority held
that the transaction of sale which is preliminary to export for the commodity
sold may be regarded as a sale for export, but is not necessarily to be
regarded as one in the course of export, unless the sale occasions export. Etymologically
the expression 'in the course of export'. contemplates an integral relation or
bond between the sale and the export.

In
general where a sale is effected by the seller, and the seller is not connected
with the export which actually takes place, it is sale for export. Where the
export is the result of the sale, the export being inextricably linked up with
sale so that the bond cannot be dissociated without a breach of the obligations
arising by statue or contract of mutual understanding between the parties
arising from the nature of the transaction, the sale is in the course of
export. it was further laid down as under:

"
A sale in the course of export predicates a connection between the sale and
export, the two activities being so integrated that the connection between the
two cannot be voluntarily interrupted, without a breach of the contract or the
compulsion arising from the nature of the transaction. In the present case
there was between the sale and the export no such bond as would justify the
inference that the sale and the export formed parts of a dingle transaction or
that the sale and export were integrally connected. The appellants were not
concerned with the actual exportation of the goods and the sales were intended
to be complete without the export, and as such it cannot be said that the said
that the said sales occasioned export and not in the course of export.
Therefore the sales bu the appellants to the agents of foreign buyers do not
come with the purview of Act. 286(i) (b) of the constitution." As per the
aforesaid decision of the constitution Bench before a sale can be said to have
taken place in the course of export the export must have a direct nexus with
the sale and the activity of sale and export must be completely inter-linked.
On the same reasoning as in the aforesaid case, therefore, a sale in the course
of import and the sale and the import must have an integrated and intertwined
connection. If that is not so it would not be sale in the course of import but
it would be as sale by import or because of import. In the case of K.G. Khosla
& co. v. Deputy commissioner of commercial Taxes [1966] 3 SCR 352 a latter
constitution Bench of this court had to deal with the question whether sales in
that case were in the course of import. Section 5 sub-section (2) directly fell
for consideration of the constitution Bench. In that case the
appellant-assessee had entered into a contract with the Director General of
supplies. New Delhi for supply of axle bodies
manufactured by its principals in Belgium. The goods were inspected on behalf of the buyers in Belgium but under the contract they were
liable to rejection after further inspection in India. In pursuance of the contract the appellant supplied axle
bodies to the southern Railway at parambur and Mysore. It was the contention of the appellant that the sales
effected by them in favour of Director General of Supplies. New Delhi were in the course of import.

That
contention was rejected by the Joint commercial Tax officer, Madras who held that these were
intra-state sales because the seller was the consignee of the goods and the
buyer had reserved the right to reject the goods even after their arrival in India. Accordingly assessment was made
under Madras General Sales Tax Act in respect of supplies at Mysore. The appellant lost before the
Appellate Assistant commissioner but partially succeeded before the Tribunal
which held that part of the goods were sold in the course of import. Both the
parties filed two Revision Application in the High court. The High court
allowed the Revision Application of the state and rejected that of the
assessee.

The
appellant thereafter approached this Court by special leave. Allowing the
appeal of the assessee it was held by the constitution Bench of this court
speaking through Sikri, J., that section 5 sub-section (2) of the central sales
Tax Act does not lay down any condition that before a sale could be said to
have occasioned import it is necessary that the sale should have preceded the
import. That it was quite clear on the facts that it was incidental to the
contract that the axle-box bodies would be manufactured in Belgium, inspected there, and imported into
India for the consignee.

Movement
of goods from Belgium to India was in pursuance of the conditions of the contract between
the assessee for any other purpose. Consequently the sales took place in the
course of import of goods within Section 5(2) and, therefore case indicate that
the assessee was the agent of the foreign seller. The principles were in Belgium. They exported the goods through
the agency of the appellant and sold them to the Director General of civil
supplies. New Delhi who was the consignee. Thus the
entire transaction was an integrated transaction by which a foreign seller
through its Indian agent, namely, the assessee sold the goods to Indian
purchaser, namely, the Director General of civil supplies.

Consequently
it was treated as one integrated transaction of sale by a foreign exporter of
goods to Indian importer, namely, the Director General of civil supplies, New Delhi through the agency of its local
agent, namely, the assessee and, therefore, the transaction was treated by the
constitution Bench as representing sale in the course of import. The third constitution
Bench judgment is found in the course of import. The third constitution Bench
judgment is found in the case of coffee Board, Bangalore v. Joint Commercial Tax officer. Madras and Another (1969) 3 SCC 349.

In
that case the coffee Board had sold coffee at the export auctions with a view
that the coffee may get exported through these auction purchasers to outside
countries. it was the contention of the coffee Board that these sales were in
the course of export of coffee out of the territory of India since the sales themselves
occasioned the exports of coffee and coffee so sold was not intended for use in
India or for sale in Indian markets. This
contention canvassed in the writ petition under Article 32 of the constitution
by the coffee Board was rejected by the majority of the constitution Bench
speaking through Hidayatullah, CJ. It was held that the petitioners cannot
claim exemption from tax.

The
phrase 'sale in the course of export' comprises in itself three essentials :
(i) that there must be sale; (ii) that goods must actually be exported and
(iii) that the sale must be a part and parcel of the export. Therefore either
the sale must take place when the goods are already in the process of being
exported which is established by there having already crossed the customs
frontiers, or the sale must occasion the export. The phrase of export' 'or
during export'. Therefore the export from India to a foreign destination must be established and the sale must be a
link in the same export for which the sale is held. The tests are that there
must be a single sale which itself causes the export or is in progress or
process of export. There is no room for two or more sales in the course of
export is the sale which itself result in the movement of the goods from the
exporter to the importer. Sale must be
an integral part of the precise export before it can be said to have occasioned
that particular export. Applying the aforesaid test laid down by majority in
that decision to 'sales in the course of import' three essentials would
obviously be required to be met before the sale can be said to be in the curse
of import, (i) there must be sale: (ii) the goods must actually be imported;
and (iii) the sale must be part and parcel of the import. Consequently it must
be shown by the appellants that the sale by CCI to the local users of imported
raw cashewnuts had occasioned the import and such a sale was a part and parcel
of the import. If there are two independent sales, one by a foreign exporter to
CCI and second sale by CCI to the local users, the link between the import of
raw cashewnuts and their actual delivery to their actual users would be broken.
The integrated course of import would then be found wanting. The next
constitution Bench judgments rendered in the case of The state of Bihar and
Another v. Tata Engineering and Locomotive co. Ltd.

(1970)
3 SCC 697. In that case the constitution found in Article 286(2) of the
constitution dealing with sales in the course of inter-state trade or commerce.
Hegde, J., speaking for the Constitution Bench made the following pertinent
observation in para 14 of the Report :

"The
decided cases establish that sales will be considered as sales in the course of
export or import or sales in the course of inter- state trade and commerce under
the following circumstances :

(1)
When goods which are in export or import stream are sold;

(2)
When the contract of sale or law under which goods are sold require those goods
to be exported or imported to a foreign country or from a foreign country as the
case may be or are required to the state other than the state in which the
delivery of goods takes place; and (3) Where as a necessary incidence of the
contract of sale goods sold are required to be exported or imported or
transported out of the state in which the delivery of goods takes place."
This takes us to yet another constitution Bench judgment of this court in the
case of M/s Binani Bros. (P) Ltd. etc. etc. V. Union of India & Ors. (1974)
1 SCC 459. In this court in this Court specking through Mathew, J., had an
occasion to once again examine the question whether the sales on that case were
in the course or import of goods so as to be covered by the Article 286 (1) (b)
of the Central sales Tax Act, 1956. In that case 5(2) of the central sales Tax
Act, 1956. In that case the petitioner under Article 32 before this court was a
dealer in non-ferrous metals. He was supplying the same to the Directorate
General of supplies & Disposals (DGS & D). The petitioner used to
import these metals. The petitioner had sold the imported material as principal
to the DGS & D For effecting these sales it had purchased the goods from
foreign sellers and these purchases form the foreign sellers occasioned the
movement of goods in the course of import. It was held by the constitution
Bench that the movement of goods was occasioned by the contracts for purchase
which the petitioner entered into which the foreign sellers. No movement of
goods in the course of import took place pursuant to the contracts of sales to
DGS & D were distinct and separate from his purchase from foreign sellers.
To put it differently the sales by the petitioner to the DGS & D did not
occasion the import. On the contrary purchases made by the petitioner from the
foreign sellers occasioned the import of the goods. There was no privity of
contract between DGS & D and the foreign sellers. The foreign sellers did
not enter into any contract by themselves or through the agency of the
petitioner with the DGS & D and movement of goods from the foreign countries
was not occasioned on account of the sales by the petition to DGS & D. It
was further held that through under the contract DGS & D undertook to
provide all facilities for that import of the goods for fulfilling the
contracts including an Import Recommendation certificate, there was no absolute
obligation on the DGS & D to procure these facilities. And it was the
obligation of the petitioner to obtain the import licence. Therefore, even if
the contracts envisaged the import of goods and their supply to the DGS & D
from out of the goods imported, it did not follow that the movement of the
goods in the course of import was occasioned by the contracts of sale by the
petitioner with DGS & D AS we will presently show, the ratio of the
decision of the aforesaid constitution Bench directly gets attracted on the
facts of the present cases. Substituting DGS & D for local users and the
petitioners in that case by the CCI it becomes clear that on the same reasoning
by which the constitution Bench held in the aforesaid case that the sale by
petitioner to DGS & D was not in the course of import it will have to be
held that the sales by CCI in the course or import. Another Constitution Bench
judgment which also gets squarely attracted on the facts of the present cases
is rendered in the case of MD. Serajuddin & Ors. etc. etc. V.

The
state of Orissa (1975) 2 SCC 47. In the aforesaid case this was concerned with
the interpretation of the term 'in the course of export' as found in section
5(1) of the central sales Tax Act. However, while interpreting the said
phraseology the constitution Bench also construed identical phraseology found
in section 5(2) dealing with in the course of import'. In that case the
appellant before this court was assessee who was registered dealer under the
central sales Tax Act, 1956, carrying on business of mining and exporting
mineral ores to foreign countries. He had entered into four contracts for sale
of chrome concentrates. Two of them were directly with foreign buyers. The
other two were directly with the state Trading corporation (STC) ever since
export of mineral ores was canalise through it. The STc in turn entered into
contracts with foreign buyers. The High court held sales under the first two
contracts directly with foreign buyers exempt from sales tax being in the
course of export. But it held sales under the contract with STC not exempt from
sales tax under the contract with STC not exempt from sales tax under Article
286(1) (b) of the constitution read with section 5(1) of the central sales tax
Act. The majority of the constitution Bench speaking through Ray, CJ., upheld
the decision of the High court against the assessee. It was held that section 5
of the central sales Tax Act has given a legislative meaning to the expression
'in the course of export' and ' in the course of import'.

The
expression 'in the course' implies not only a period of time during which the
movement is in progress but postulates a connected relation. Sale in the course
of export out of the territory of India means sale in the course of export out
of the territory of India means sale taking place not only during the goods out
of the country but also as part of or connected with such activities. In
paragraph 18 of the Report the following pertinent observation were made:

"
A sale in the course of export predicates a connection between the sale as
decisive for determining that question. Each case must depend upon its facts.
But it does not mean that distinction between transaction which may be called
sales for export and sales in the course of export is not real. Where the sale
is effected by the seller and the seller is not connected with the a sale for
export. Where the export is the result if sale, the export being inextricably
linked up with sale so that the bond cannot be dissociated without a breach of
the obligations arising by stature, contract, or mutual understanding between
the parties arising from the nature of the transaction the sale is in the
course of export." While considering the question whether the sale is in
the course of export, the Constitution Bench considered the further question
further there should be a single sale or there can be two or more independent
cases. In this connection, it was observed that there must be a single sale
which itself causes the export and there is no room for two or more sales in
the course of export. The sale which is to be regarded as exempt is a sale
which causes the export to take place or is the immediate case of the export.
To establish export a person exporting and a person importing are necessary
elements and the course of export is between them. Introduction of a third
party dealing independently with the seller on the one hand and with the
importer on the other breads the link between the two for then there are two
sales one to the intermediary and the other to the importer. The first sale is
not in the course of export because the export commences with the intermediary.
The tests are that there must be a single sale which itself causes the export.
The only sale which can be said to cause the export is the sale which itself
result in the movement of the goods from the exporter to the importer. So the
test is whether there were independent transactions or only one transaction
which occasioned the movement of the goods in the course of export. Applying
this principle to the facts of the case it was held that the sale by the
assessee to the STC which was the canalising agency for exports had no
connection with the export by STC of the purchased goods to the foreign buyers
and, therefore, the sale by the assessee in favour of the canalising agency ,
namely, STC was held not to be a sale for export. In this connection the
following pertinent observation were made in paragraphs 25 and 26 of the
Report:

"
Hence the contention on behalf of the appellant that the contract between the
appellant and the corporation and the contract between the corporation and the
foreign buyer formed interacted activities in the course of export is unsound.
The pre-eminent question is as to which is the sale or purchase which occasions
the export. The distinction between sales for export cannot be disregarded.

The
features which point with unerring accuracy to the contract between the
appellants and the corporation on the one hand and the contract between the
corporation and the foreign buyer on the other as two separate and independent
contracts of sale are : There was no privity of contract between the appellant
and the foreign buyer.

The
privity of contract is between the corporation and the foreign buyer. The
privity of contract is between the corporation and the foreign buyer. The
immediate cause of the movement of goods and export was the contract between
the foreign buyer who was the importer and the corporation who was the exporter
and shipper of the goods.

All
relevant documents were in the name of the corporation whose contract of sale
was the occasion of the export. The expression " occasions" in
Section 5 of the Act means the immediate and direct cause. But for the contract
and direct cause. But for the contract between the corporation and the foreign
buyer, there was no occasion for export. Therefore, the export was occasioned
by the contract of sale between the corporation and the foreign buyer and not
by the contract of sale between the corporation and the appellant.

The
appellant sold the goods directly to the corporation. The circumstance that the
appellant did so to facilitate the performance of the contract between the
corporation and the foreign buyer on terms which were similar did not make the
contract between the appellant and the corporation the immediate cause of the
export." Sales or purchases through canalising agencies who export or
import goods were also considered paragraph 28 of the Report. It was held that
system of canalisation of exports or imports through the state Trading corporation
is constitutionally valid. The broad reasons for the system of canalisation are
control of foreign exchange ad prevention of abuse of foreign exchange. Counsel
for Minerals and metals Trading co. which became the successor to the
corporation did not contend that the successor to the corporation did not
contend that the corporation is and agency. Agency is created by actual
authority given by principal to the agent or principal's ratification of
contract entered into by the agent on his behalf but without his authority.
Agency arises by an ostensible authority conferred by the principal on the
agent or by an implication of law in cases of necessity. The contention on
behalf of the appellant that STC was an agent of necessity because the STC was
a special agency to carry out certain public policies, was turned down. It was
held that the sale by the assessee to the canalising agency which exported the
goods was a sale transaction between two principal and agent.

Applying
the ratio of the aforesaid constitution Bench decision to sale or purchase in
the course of import as envisaged by section 5(2) which is pari materia
provision and is almost a mirror image of the provision of section 5(1) dealing
with converse type of cases it has, therefore, to be held that any purchase of
goods imported by canalising agency like CCI which is the importer of such
goods and which sells them to the actual users would also partake the character
of a sale between principal wherein the foreign seller would be out of picture
and such transactions between all the three of them so as to make the
transaction one of sale or purchase in the course of import. But it may as well
be a transaction because of or by import carried out by the canalising agency
like CCI. It is also pertinent to note that the constitution Bench in
Serajuddin's case (supra) has heavily relied upon other constitution Bench
judgment in the case of Binani Bros. (Supra) which was directly concerned with
the interpretation of section 5(2) of the central sales Tax Act as we have seen
earlier.

Learned
senior counsel for the appellants invited our attention to a decision of a
Bench of two learned Judges of this Court in the case of The Deputy
Commissioner of Agricultural Income Tax and sales Tax. Central Zone.

Ernakulam
v. M/s Kotak & co.. Bombay. etc. etc. (1974) 3 SCC 148. The said decision
was rendered in the light of the peculiar facts of the case which came up for
consideration of this court. The Bench speaking through Hegde, J., noted the
fact that the assessee-firm before them had imported cotton against actual
user's import licence granted to the mills concerned and was selling the cotton
to them. That the assessee was also precluded from selling to anybody other
than the mills to whom the user's import licence had been granted. It was also
noted that the assessee-firm had entered into contract with the mills, dated March 20, 1964, that the import licence issued in
favour of the mills was made available to the firm for utilisation of the
contract, that the letter of authority authorising the firm to import cotton
was also issued. That the bill of lading obtained by the foreign supplier on
shipment of the goods was also obtained by the firm and the cotton was thus
sent to India.

On the
peculiar facts of that case, therefore, it was held that the assessee-firm was
acting on behalf of the Indian importer mills concerned. In the light of the
aforesaid peculiar facts of the case, therefore, the Bench applied the ratio of
the decision of this court in the case of K.G.

Khosla
& Co. (supra) . It is difficult to appreciate how the said decision can be
of any avail to the appellants on entirely different set of facts which have
remained will established on record and which will be adverted to by us in the
latter part of this judgment.

It is
time for us now to refer to two other judgment of this court rendered by
Benches of three learned Judges and on which strong reliance was placed by the
learned senior counsel for the appellants. In the case of Deputy Commissioner
of Agricultural Income Tax and sales Tax.

Eranakulam
v. Indian Explosive Ltd. (1985) 4 SCC 119 this court dealt with the question
whether the respondent- assessee was concerned with sale transaction in the course
of import of chemicals, dyes etc. The modus operandi assessee in that case was
to the effect that local purchasers used to place orders with the respondent.
The respondent then placed orders with the foreign supplier for the supply of
the goods and in such orders the name of the local purchaser who required the
goods as also its licence numbers, were specified; the actual import was done
on the strength of two documents like (a) the Authority issued by chief
controller of Import the goods, to open letters of credit and make remittent of
foreign exchange against the said license to the extent of value specified
therein. The impost licence expressly contained two conditioned, (i) that the
goods imports will be the property of the licence-holder at the time of
clearance through the customs and (ii) that the goods will be utilised only for
consumption a raw material or accessories in the licence-holder's factory and
that no portion thereof will be sold to or be permitted to be utilised by any
other. In the light of these facts the decision of the Kerala High court that
respondent-assessee had effected sales in the course of import, was upheld by
this Court. Tulzapurkar, J., speaking for this court observed that there was an
integral connection between the sale to the local purchase and the actual
import of the goods from the foreign supplier. The movement of goods from
foreign country like United
states to India was in pursuance of the conditions
of the pre-existing contract of sale between the respondent-assessee and the
local purchaser. The import of the goods by the respondent-assessee was for and
on behalf of the local purchaser and the respondent-assessee could not, without
committing a breach of the contract, divert the goods so imported for any other
purpose. In paragraph 4 of the Report it was further observed in the light of
various decisions of this court to which we have made a reference earlier, that
in order that the sale should be one in the course of import it must occasion
the import there must be integral connection or inextricable link between the
first sale following the import actual import provided by an obligation to
import arising from statute, contract or mutual understanding or nature of the
transaction which links the sale to import which cannot, without committing a
breach of statute or contract or mutual understanding, be snapped.

The
aforesaid decision obviously was rendered in the light or the peculiar facts of
the case before the court. In that case that case the respondent-assessee was
acting on behalf of the local importers and was almost as good as their agents
for importing the goods on their behalf from foreign countries. The goods
imported had to be the property of the licence-holder at the time of clearance
from the custom and it was on the basis of the actual user's licence that the
goods were imported by the respondent-assessee and , therefore, it was held on
the facts of that cause that there was an integral connection or inextricable
link between the first sale following the import arising from contract or
mutual understanding or nature of the transaction which linked the sale to
import which could not, without committing a breach of contract or mutual
understanding be diverted elsewhere. As we will presently see no such conclusion
is possible on the facts of these appeals and in the light of salient features
emerging on the record of these cases. On the contrary the decisions of the
constitution Benches of this court in Serajuddin's case (supra) and in the case
of Binani Bros. (supra) get squarely attracted. The other decision on which
strong reliance was placed by the learned senior counsel for the appellants was
rendered by a Bench of three learned Judges in the case of Consolidated coffee
Ltd. and Anr. etc. V. Coffee Board.

Bangalore
etc. etc. (1980) 3 SCR 625 which is called the second coffee Board case. In
that case Tulzapurkar, J. speaking for the Bench had to consider the
constitution validity of section 5 sub-section(3) of the central sales Tax Act
which was brought on the statute Book in the light of the earlier coffee Board
case judgment of the constitution Bench in Coffee Board, Bangalore (supra). By
the said amendment to section 5(3) the legislature thought it fit to grant
exemption also to the penultimate sales prior to the sales in the course of
export by the canalising agency. That was with a view to boost up foreign
exchange earnings. While upholding the said amendment it was held that section
5(3) of the Central sales Tax Act has been enacted to such penultimate sale as
satisfies the two conditions specified therein, namely, (a) that such
penultimate sale must take place (i.e. become complete) after the agreement or
order under which the goods are to be exported and (b) it must be for the
purpose of complying with such agreement or order and it is only then that such
penultimate sale is deemed to be a sale in the course of export. The aforesaid
decision, therefore, is confined to the validity of the amended provision which
itself postulates that but for such amendment the penultimate sale would have
remained outside the sweep of Section 5 sub- section(1) of the Central sales
Tax Act and such penultimate sale could not have been treated as sale in the
course of export. Even that apart for interpreting the identical phraseology
" in the course of" found both in section 5(1) and section 5(2) this
decision by three learned Judges' Bench could not have laid down anything
contrary to what the constitution Benches in Serajuddin's case (supra) and in
the case of Binani Bros. (supra) had laid down on the true construction of the
provision of section 5(1) and 5(2) while interpreting the words 'in the course
of export' or ' in the course of import' as found in these provisions.

Reliance
placed by our esteemed colleague Sujata V. Manohar, J. on the judgments of this
court in the cases of Indian Explosives Ltd. and M/s. Kotak & co. (supra)
for taking the view that ratio of the constitution Bench judgment in Md.
Serajuddin case (supra) would not be applicable as the legislature had amended
the relevant provisions of section 5, in our view, is not apposite. In the
first place, as noted earlier, the decisions of smaller benches of learned
Judges of this court that decided Indian Explosives and M/s. Kotak & Co.'s
case (supra ) cannot be pressed in service by the appellants when on facts of
the present cases the contrary ratio of the decisions of the constitution
Benches which decided MM. Serajuddin's case (supra) and M/s. Binani Bros.'s
case (supra) squarely get attracted. Even that apart, with great respect to our
esteemed colleague Sujata V. Manohar, J., it could not assumed that the
legislature by inserting sub-section (3) of section 5 had in any way departed
from the ratio of the aforesaid constitution Bench decisions on the statutory scheme
as was then existing.. it is trite to observe that the legislature is competent
to remove the substratum of the earlier judgment or this court by inserting s
new provision.

It is
necessary to visualise that but for sub-section (3) of section 5 as introduced
by the latter amendment, the penultimate transactions would have remained
outside the sweep of the phrase 'sale in the course of export'. It is only
because of the latter amendment that by a legislative fiction even the
penultimate sales were sought to be covered by the said phrase. It is pertinent
to observe in this connection that there is no such amendment introduced by the
legislature for extending the sweep of the phrase `sale in the course of import
'.

In the
light of the aforesaid settled legal position emerging from the constitution
Bench decisions of this court the following propositions clearly get projected
fro deciding whether the concerned sale or purchase of goods can be deemed to
take place in the course of import as laid down by section 5(2) of the central
sales Tax Act:

(1)
The sale or the purchase, as the case may be, must actually take place.

(2)
Such sale or purchase in India must itself occasion such import, and not vice
versa i.e. import should not occasion such sale.

(3)
The goods must have entered the import stream when they are subjected to sale
or purchase/.

(4)
The import of the concerned goods must be effected as a direct of the concerned
sale or purchase transaction.

(5)
The course of import can be taken to have continued till the imported goods
reach the local users only if the import has commenced through the agreement
between foreign exporter and an intermediary who does not act on his own in the
transaction with the foreign exporter and who in his turn does not sell as principal
the imported goods to the local users.

(6)
There must be either a single sale which itself causes the import or is in the
progress or process of import or through there may appear to be two sale
transactions they are so integrally enter-connected that they almost resemble
one transaction so that the movement of goods from a foreign country to India
can be ascribed to such a composite well integrated transaction consisting of
two transactions dovetailing into each other.

(7) A
sale or purchase can be treated to be in the course of import if there is a
direct privity of contract between the Indian importer and the foreign exporter
and the intermediary through which such import is effected merely acts as an
agent or a contractor for and on behalf of Indian importer.

(8)
The transaction in substance must be such that the canalising agency or the
intermediary agency through which the imports are effected into India so as to
reach the ultimate local users appears only a as mere name lender through whom
it is the local importer-cum-local user who masquerades.

If the
aforesaid conditions are satisfied then obviously the transaction of sale or
purchase would be in the realm or sale or purchase in the course of import
entitling it to earn exemption under section 5(2) of the central sales Tax Act.
But if on the contrary the transactions between the foreign exporter and the
local user in India get transmitted through an independent canalising- import
agency which enters into back to back contracts and there is no direct linkage
or caudal connection between the export by foreign exporter and the receipt of
the imported goods in India by the local users, the integrity of the entire
transaction would be disrupted and would be substituted by two independent
transactions. one between the canalising agency the owner of the goods imported
and the other between the import canalising agency and the local users for
whose benefit the goods were imported by the wholesale importer being the
canalising agency. In such a case the sale by the canalising agency to the
local users would because of or by import which would not be covered by the
exemption provision of section 5 sub-section (2) of the central sales Tax Act.

On the
facts of these cases and in the light of the propositions enumerated above it
is impossible to accept the contention of learned senior counsel for the
appellants that the sales in the present cases effected by the CCI in favour of
the local users were in course of import of raw cashew from African countries.

We may
state that a clear finding of fact is reached by the tribunal in cases arising
out of Revisions before the Kerala High court and also by the Karnataka High
Court in the appeals by CCI that neither the CCi nor the assessee had led any
evidence to show that goods were sold by transfer of documents of title on high
seas, and hence it had to be held that CCI had not sold the goods crossed the
customs frontiers of India and resultantly the latter part of section 5(2) is
not attracted on the facts of these aspects any further.

Now is
these time for us to take stock of the situation and to see whether the
aforesaid requirements for the applicability of section 5(2) have been met in
the present cases or not.

Prior
to September 1970 the assessees imported raw cashewnuts from African countries
under an open General Licence. After processing these cashewnuts the assessees
exported cashewnut kernels to other countries. By a Notification issued under
bearing No.3-1970 dated 31st of August 1970, " cashewnuts" were deleted
from the schedule of items which could be imported under an open General
Licence.

Instead
they were now required to be imported through a canalising agency, namely, the
CCI. As a result, for the relevant assessment years 1970-71 to 1972-73 the
assessee imported their requirement of cashewnuts from African countries
through the CCI. As the CCI is acting as a canalising agency, it after
collecting the information regarding the requirements of actual users in
connection with the import of raw cashew is found to have acted on its own in
this dealing with the foreign exporter. Therefore, CCI cannot be said to be an
agent of the local users. it has been found as a fact that CCI deals with the
foreign exporter on its own though while so acting it may be keeping in view
its further obligation to sell the imported cashew to there concerned private
local users who have to process the same for exporting the processed cashewnuts
ultimately.

It is
also well established on record that on account of the demands by local users
and the agreement to sell the imported cashew by CCI to the local users the CCI
undertakes the task of imparting cashew on wholesale basis from the foreign
exporters by entering into independent contracts with the foreign exporters by
entering into independent contracts with the foreign exporters. The following
salient features of the transaction which remain well established on record and
which have been enumerated by the Kerala High court deserve to be noted at this
stage :

(a)
There was a direct, distinct and independent contract of purchase between the
CCI on the one hand and the foreign sellers in Africa on the other.

(b)
The transactions under which the CCI sold the imported raw cashewnuts to the
assessee on payment of the price thereof are wholly unconnected with the
contract of purchase, the CCI had entered into with the foreign sellers.

(c)
There is no privity of contract between the assessees and the foreign sellers.

(d)
The assessees remained undisclosed to the foreign sellers.

(e)
The foreign sellers know nothing of the understanding between CCI and the
assessees, discernible from the various orders and agreements executed between
them in connection with the distribution of the raw cashewnuts.

(f)
The bills of lading were undisputable made out in the name of the CCI and the
CCI therefore had obtained a complete and indefeasible title to the goods
purchased by them from foreign sellers.

(g)
The transaction under which the raw cashewnuts were put on board the ship did
not create any real rights and obligations as between the foreign sellers and
the assessees although the raw cashewnuts are supposedly imported for their
benefit.

(h)
The circumstance that the contract between CCI and the foreign sellers was in
the CIF form strengthens the position that there were two distinct, independent
and unconnected purchases.

(i)
Sale prices for distribution of goods to actual users will be determined by the
public sector agency concerned subject to the guidance and general control of
the Ministry of Foreign Trade.

In
this connection it will so be profitable to keep in view the findings recorded
by the Kerala Appellate Tribunal based on relevant evidence on record. At page
88 of the paper books is found a letter dated 4.11.1970 addressed by CCI to one
similarly situated local users Bakul Cashew Co., Quilon. The said letter calls
upon the local users to furnish requisite bank guarantee for the entire value
of the goods allotted to it or in the alternative open a letter of Credit in
favor of the cashew corporation of India, Cochin/state Trading corporation of
India, Cochin through the cochin Branch of its bankers in Quilon. The letter
further recites that clearance of respective quantity of cashewnuts would be
done by executing a bond with customs with the help of following documents :

1.
Provisional invoice to be issued by CCI in the absence of original supplier's
invoice.

(2)
No. and date of sub-licence issued in its favour.

(3)
Delivery order in local user's favour issued by the steamer agent.

The
Tribunal also noted the further fact that the foreign exporter issues invoice
of the exported commodity to India in favour of CCI Ltd. whose import licence
is also mentioned at the top of the invoice. That licence is in favour of
Cashew corporation of India. A copy of such invoice is found at page 94 of the
paper Book. This invoice leaves no room for doubt that the privity of contract
between the foreign exporter and the Indian importer is between the foreign
exporter and the Indian importer is between the CCI as importer and the foreign
exporter at the other end which would clearly pre-suppose that the goods moved
in the import stream on account of the purchase by CCI, the Indian importer,
which places order for import of cashew with the foreign exporter. The local users
are nowhere in the picture at that stage. It may be that the CCI acting as a
wholesale importer places the orders for import of cashew in the light of
theses prior agreements with the local users. But that would make it a
wholesale importer acting upon the requirements of the local users who would
remain local purchasers through the wholesale seller-cum- importer CCI. At page
95 of the paper Book is also found CCI's invoice in turn issues for a users
quantity of .p161 imported material in favour the sub-licence in issued. At
page 96 is found a copy of the Bill of Lading which also shows that the foreign
exporter has exported the goods in favour of the CCI, Cochin through the
concerned ship. It is also found established on record that the goods could be
cleared through customs by the locals users after making full payment of the
goods to the CCI. Thus ownership of the goods remains with the CCI till the
concerned documents are cleared through the bankers of the local users a copy
of which is found as Annexure 'I' at page 99 of the paper Book shows that the
goods for the import of which the licence has been granted shall be the
property of the license t the time of clearance through the customs. It was
submitted by the learned senior counsel for the appellants that was a mistaken
condition imposed in the subsidiary licence. Be that as it may, during the
relevant period of assessment such subsidiary licence clearly showed that the
main licence to import was in favour of CCI and the sub-licence was available
to the local users who could become the owner of the goods imported only after
making full payment of the goods to the CCI and after getting clearance of the
goods through the customs. " Even the Letter of Authority given by the
Ministry of Foreign Trade to CCI as importer of the goods to permit the
indenter to clear imported goods through the customs also reflects the same
position. The Kerala Tribunal in paragraph 21 of its judgment has found that
the allottees cannot claim absolute ownership of the goods before customs
clearance as it is evidenced from a letter dated 29.2.1971 sent by the cashew
corporation of India to certain allottees, wherein it has been specifically
stated that if steps are not taken by the allottee to take delivery of the
goods that reached the port immediately, the corporation of the corporation to
the allottes would go to show undoubtedly that the goods remain the property of
the corporation with specific right to re-allot or re-sell the same to other
parties until the goods are cleared through customs. so, the allottees cannot
claim ownership of property in the goods before they clear the goods through
customs. It was submitted that the CCI was under an obligation to allot the
requisite quantity of imported Cashewnuts to the local users for whose benefits
the goods were imported. But that will not reflect that local user was the
importer. Agreement between CCI and local user may give a contractual right to
the local users to enforce its demands against CCI and in a given case it may
be enforced by specific performance against CCI. That claim, however , has
nothing to do with foreign exporter who only deals with CCI as bulk importer of
the goods and against whom the local user cannot have any legally enforceable
right. All the aforesaid features which are well established on record leave no
room for doubt that it is on account of the sale to CCI by foreign exporter
that the raw cashew get imported the canalising agency like CCI to place orders
for import of the concerned quantities. But CCI by the foreign exporter on its
own and gets bulk imports of cashewnuts. It is the sale to the CCI buy the
foreign exporter that occasions the movement of raw cashew from African
countries to India. The imported cashew remains of the ownership of the importer
CCI and only on retirement of documents on payment of value of the allotted
cashew by the local users and on their getting the goods cleared from customs
that the properly in the concerned imported goods would pass from CCI to the
local users. Thus there are two clear transactions. One transaction is import
of raw cashew by CCI from foreign exporters The second transaction which is
back transaction which is back to back transaction is of sale by the canalising
agency like CCI which is the wholesale importer in favour of the local users
for whom the goods are indented. That independent sale which may be based even
on a prior agreement of sale by CCI to local users would remain an independent
transaction between importer CCI and the local purchaser, namely the local
user. There is no privity of contract between the local users on the one hand
and the foreign exporter on the other. These two transactions cannot be said to
be so integrally interconnected as to represent one composite transaction in
the course of import of raw cashewnuts as tried to be submitted by learned
senior counsel for the appellants. On the facts of these cases, therefore, the
decisions of the constitution Benches of this Court in Serajuddin's case
(supra) and in the case of Binani Bros. (supra) get squarely attracted and as a
result these sales by the CCI to the local users go out of the sweep of the
exemption provisions engrafted by section 5(2) of the Central sales Tax Act.
The conclusion to which the Kerala and Karnataka High court reached, therefore,
cannot be faulted.

The
alternative contention canvassed on behalf of the appellant by learned senior
counsel Shri Poti based on section 2(ab) of the central sales Tax Act which
defines 'crossing the customs frontiers of India' as crossing the limits of the
area of a custom station in which imported goods or exported goods are
ordinarily kept before clearance by customs authorities. also cannot be of any
avail to the appellants fore the simple reason that this amendment was brought
on the statute Book much after the relevant assessment years. This amendment
which sought to confer a substantial benefit to the local users cannot be said
to be a procedural amendment which could have any retrospective provision is of
a remedial nature and it cannot be said to be a procedural amendment which
could have any retrospective effect. On the contrary this substantive prevision
is of a remedial nature and it cannot have any retrospective effect by
implication. The provision is also not expressly made retrospective. As laid
down by a three member Bench of this court in the case of R. Rajagopal Reddy
(Dead) by LRs. & Ors. V. Padmini Chandrasekharan (Dead) by LRs (1995) 2 SCC
630 wherein one of us, S.B. Majmudar, J., spoke for the Bench, that it is now well
settled that where a statutory provision which is not expressly made
retrospective by the legislature seeks to affect vested rights and
corresponding obligations of parties, such provision cannot be said to have any
retrospective effect by necessary implication. In para 15 of the Report
reliance was placed on an earlier decision of this court in the case of
Garikapai Veeraya V. N. Subbiah Choudhry Air 1957 SC 540 wherein chief Justice
S.R. Das speaking for this court had made following pertinent observations:

"
The golden rule of construction is that in the enactment to show that it is to
have retrospective operation, it cannot be so construed as to have the effect
of altering the law, applicable to a claim in litigation at the time when Act
was passed." Consequently it cannot be said that the enactment of a new
definition regarding crossing the customs frontiers of India a said down by
section 2(ab) of the Central sales Tax Act for considering the liability to pay
sales tax could be legitimately pressed in service for deciding the question of
sales Tax liability of appellants during the assessment years when such
definition was not on the statute book. For all these reasons no case is made
out by the appellants for our interference in these cases. With grate respect
to our esteemed colleague Sujata V. Manohar, J., it is not possible to agree
with her conclusion that there is a direct and inseverable link between the
transaction of sale and the import of goods on account of the nature of the
understanding between the parties as also by reason of the canalising scheme
pertaining to the import of cashewnuts.

Nor it
is possible for us to agree with her finding that these transactions are
covered by the exemption provisions of Section 5(2) of the central sales Tax Act.
In view of our findings that these transaction are not covered by the exemption
provisions of section 5(2) all the appeals are liable to fail and are
accordingly dismissed, however, with no order as to costs.